Wealth Management Services
Ann Bergin
General Manager &
Managing Director
Wealth Management Services
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MutualFund
Services
ManagedAccountsService
AlternativeInvestmentProducts
Broker/Dealers
Banks/Trusts
Administrators
Insurance Carriers
Program Sponsors
Mutual Funds
Offshore Funds
Hedge Funds
REIs
Managed Futures
Commodity Pools
Separate Accounts
Wealth Management Services
Mutual Fund Services
Mutual Fund Services
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Mutual Fund Services
Managed AccountsService
Alternative InvestmentProducts
Broker/Dealers
Banks/Trusts
Administrators
Insurance Carriers
Program Sponsors
Mutual Funds
Offshore Funds
Hedge Funds
REITs
Managed Futures
Commodity Pools
Investment Mgrs.
Mutual Funds at a Crossroad
• 1980s – Mutual fund industry experiences surging growth
• Millions of Americans begin investing in funds
• Broker/dealers identify processing challenges –
– Traditional methods inadequate to handle increasedtransaction volumes
– Business becoming non-scalable
• NSCC’s experience with equities positions the companyas the logical solutions provider for the funds industry
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1986 – Fund/SERV Introduced
An automated, centralized order-entry solution todrive greater scale, lower cost and reduce risk
• Assets in U.S. Mutual Funds $716 billion
• Fund/SERV transactions 15 orders a day
• Fund/SERV users 6
• Fund/SERV fee $0.50
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®
1997 – Growth of the Industry
• Assets in U.S. Mutual Funds $4.5 trillion
• Fund/SERV transactions 111,000 orders a day
• Fund/SERV users 679
• Fund/SERV fee $0.40
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2007 – The Industry Today
• Assets in U.S. Mutual Funds $11.4 trillion
• Fund/SERV transactions 690,000 orders a day
• Fund/SERV users 1,100
• Fund/SERV fee $0.11
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Fund/SERV Expansion
•1986 1940 Act Funds
•1992 No-Load, Money Market Funds
•1997 Defined contribution and other retirement plans(now 35% of total volume)
•2000 Independent Broker/Dealers
•2001 Nontraditional markets
– Stable value fund
– 529 state college savings
– Bank collective investment trusts
– Guaranteed investment contracts
– Offshore
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Fund/SERV – Historical Perspective
-
200
400
600
800
1,000
1,200
Participants
Funds Firms
690,632
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Average Daily Volume
Volume 646 439
0.11
0.175
0.25
0.30
0.50
0.40
Ave
rag
e D
aily
Vo
lum
e
Creating a “Family” of Fund Services
NSCC introduces other automated services, including:
• Networking – exchanges and reconciles account-levelinformation between funds and distribution firms
• Defined Contribution Clearing & Settlement – facilitatesthe processing and information exchange of retirement plans
• Mutual Fund Profile Service – provides a central sourcefor funds’ prospectus information
• Asset Transfer Services – automate the transfer of mutual fundsfrom one firm to another and of IRAs from one fund to another
• Commission Settlement – simplifies payment reconciliationbetween funds and third-party distribution firms 12
Responding to Regulatory Compliance Issues
NSCC has proposed and made changes to servicesto address:
• Late-trading – After-hours fund trading exposed
• Market-timing – Frequent trading in mutual funds
potentially
impacts long-term shareholders
• Breakpoints – Sales discounts based on aggregate
investment not consistently delivered to customers
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Wealth Management Services
Managed Accounts Service
Managed Accounts Service
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Mutual Fund Services
Managed Accounts
Service
Alternative InvestmentProducts
Broker/Dealers
Banks/Trusts
Administrators
Insurance Carriers
Program Sponsors
Mutual Funds
Offshore Funds
Hedge Funds
REITs
Managed Futures
Commodity Pools
Investment Mgrs.
Managed Accounts – Defined
• Professionally managed investment accounts designed forhigh-net-worth investors
– Most commonly known as “separately managed accounts” (SMAs)
• Broker/dealer sponsors create client-specific investmentprofiles
• Investment managers develop strategies tailored to investor’s goals and risk tolerance
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Managed Accounts – Market Snapshot
• $860 billion in industry assets
• 25% growth in assets in 2006, outpacing mutual fundsand variable annuities
• Assets forecasted to reach $1.5 trillion by 2011
• Growth is consumer driven for individualcustomization and tax-lot control
• Minimum account requirements dropping –opening doors to $2.7 trillion 401(k) market
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Current Operating Environment
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AIP -- Opportunities
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MAS – Process Flow
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SPONSOROriginates New Account Message
INVESTMENT MANAGERReceives New Account Message
New Account Set-Up
•Account Profile
•Account Funding
•Authorization to Trade
•Technical Acknowledgement
•Business Acknowledgement
–Accept/Reject Messages
DTCCMANAGEDACCOUNTS
SERVICE
Managed Accounts Service – Benefits
• Streamlines redundant operating systems
• Reduces processing risk and errors
• Removes barriers to entry – 2,000 emerging investmentmanagers
• Assures business continuity, information privacy
• Supports regulatory compliance
• Increases operating margins for sponsors, investmentmanagers
• Supports industry growth, need for scale
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Wealth Management Services
Alternative InvestmentProducts
AIP Service
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Mutual Fund Services
Managed AccountsService
Alternative InvestmentProducts
Broker/Dealers
Banks/Trusts
Administrators
Insurance Carriers
Program Sponsors
Mutual Funds
Offshore Funds
Hedge Funds
Funds of Hedge Funds
REITs
Managed Futures
Commodity Pools
AIPs – Defined
•Alternative investment products include:
– Hedge Funds
– Funds of Hedge Funds
– REITs
– Managed Futures
– Commodity Pools
•Low transaction volumes
•High transaction values
•Unique processing requirements
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AIP – Market Snapshot
• Global hedge fund assets now over $2.4 trillion andforecasted to grow to $4 trillion over next 5 years
• U.S. REITs have $475 billion in assets
• Retailization, lower investment minimums
• Key issues– Scalability– Regulatory scrutiny– Privacy– Business continuity
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Alternative Investment Products
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The Current Environment
AIP Service – Process Flow
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Trade Orders/Document Workflow
Post Trade Reporting
Commission Payments
US $ Settlement
Reference Data
Broker/Dealers
Banks
Third PartyAdministrators
Insurance Companies
Hedge Funds
Funds of Funds
REITs
Managed Futures
Commodity Pools
AIP Service – Benefits
• Increased efficiency and reduced costs
• Reduced risk of operational error
• Streamlined money settlement through a centralized process
• Improved client service and communication
• Increased industry profitability
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Questions
?Questions
?
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